Guosen Securities plans to buy control of a smaller rival in China’s technology hub of Shenzhen, answering the government’s call to consolidate the nation’s 12 trillion yuan (US$1.68 trillion) brokerage industry.
Shenzhen-based Guosen signed an agreement on Wednesday to buy 53 per cent of Vanho Securities in shares, according to a statement to the city’s stock exchange. The financial terms of the purchase will be announced within 10 days, said Guosen.
The takeover is being nudged by Shenzhen’s regulator of state-owned assets, in an attempt to cobble 145 nationwide brokerages with 11.8 trillion yuan of combined assets into fewer, bigger firms to compete with global leaders.
Guosen has not been alone in heeding the call since the State Council issued its injunction in April to nurture world-class investment banks. Zheshang Securities in Hangzhou is awaiting regulatory approval to buy 34 per cent of Guodu Securities in Beijing, while Guolian Securities in Jiangsu’s provincial city of Wuxi announced a plan to pay 29 billion yuan to buy out Minsheng Securities in Beijing. Western Securities in Shaanxi province became the latest to heed the call, with a plan in June to take over Guorong Securities in Inner Mongolia.
An undated photograph of Guosen Securities’ building in Shenzhen. Photo: Handout
Guosen’s shares closed unchanged at 9.04 yuan each on Wednesday before trading was halted on the Shenzhen exchange, raising this year’s gain to almost 6 per cent. Vanho is a non-listed brokerage.
“A new round of restructuring in the brokerage industry is being driven,” said Liu Xinqi, an analyst at Guotai Junan Securities in Shanghai. “Top-ranked brokerages have strong motives for mergers and acquisitions and by doing so, they can deliver better results on their balance sheets.”
Guosen’s first-quarter profit slumped 31 per cent from last year, as revenue fell amid decreased turnover on the stock market and fewer initial public offerings. Net income rose 9 per cent from last year during the period.
Vanho is only a fraction the size of Guosen. The brokerage had 5.4 billion yuan in assets at the end of last year, ranked 85th out of 145 brokers in the industry. Guosen was in the ninth spot, with a book value of 110.5 billion yuan, according to Founder Securities.
Vanho has 27 branches and 25 bricks-and-mortar outlets mainly in Shenzhen, Guangzhou and Chengdu, where clients can open trading accounts and transact stocks offline, according to its website. It swung to a profit of 59 million yuan last year from a net loss of 215 million yuan for the previous year, with proprietary trading business contributing to almost 60 per cent of its revenue last year.
Guosen plans to buy the stake in Vanho from Shenzhen Capital Holdings, an investment arm under the Shenzhen government, the statement said. The company will hire independent financial and legal advisers, auditing firms and appraisal agencies for the acquisition, and carry out review and submission procedures during the stock suspension, it said.
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